SolarCity IPO represents a bellwether for clean energy exits

Solar installer and financier SolarCity is moving ever closer to its planned IPO this week — the company is expected to price its shares Tuesday afternoon, and debut on the Nasdaq on Wednesday morning under the symbol SCTY. Will the promising company, backed by entrepreneur Elon Musk, buck the overall trend of weak solar stocks and withdrawn cleantech IPOs, and actually start trading within its expected price range this week?

SolarCity’s per share range was priced at $13 and $15 per share at the end of November, and at the midpoint of that range SolarCity could raise $141 million in an IPO. Musk already said that he’ll buy $15 million of the stock.

Solar industry watchers had the same questions for solar thermal BrightSource Energy, which was planning to IPO back in April of this year. But BrightSource ended up pulling its IPO plans days before the debut as it didn’t get the pricing valuation that it wanted. The company later raised a large round of money from existing investors instead of turning to the public markets.

But SolarCity is very different from BrightSource Energy. While BrightSource is building large solar power plants in the deserts and selling the power to utilities, SolarCity is providing installation and financing to put solar panels on rooftops. The advantages of its business model and markets are that:

1). The price of solar panels is at a historic low.

2). Much of its business is around providing financing to cover the upfront cost of panels. There’s not much technology risk there.

Though, there are still some open questions in SolarCity’s future. GigaOM Pro’s Adam Lesser points out that SolarCity’s business model is based on maintaining two things that could face an uncertain future:

1). A low cost of capital: SolarCity has already raised $1.57 billion in “tax equity” funds to fund solar installations, where investors put up cash and in return receive the 30 percent tax credit that the federal government provides for renewable energy projects. But those incentives could easily be cut in the coming years, and then the company needs to find low cost capital elsewhere.

2). Cheap natural gas: Lesser also points out that “if natural gas maintains its incredibly cheap pricing, then the market could get more difficult for SolarCity.” SolarCity depends on utility rates being higher for its customers than the electricity prices it can offer through solar systems. If super cheap natural gas used in power plants by utilities actually lowers electricity prices, that could mess with SolarCity’s markets.

But if SolarCity does manage to debut in its expected range, it would represent one of the rare venture-backed cleantech IPOs that have emerged over the years. SolarCity is backed by Draper Fisher Jurvetson, DBL Investors, Generation Investment Management and Musk. Much of this crew — DBL, DFJ and Musk — also took electric car maker Tesla public, which was another one of those rare cleantech IPOs. Maybe entrepreneurs and investors should just copy what these guys do.

A new publicly-traded solar company could help prove that there are smart investments and sizable exits for those entrepreneurs and investors that bet on the right side of the economic trends in cleantech. Solyndra and many of the next-gen solar manufacturers out there bet on the price of silicon going up and now are struggling (or not around anymore). In actuality the price of silicon dropped, making solar panels super cheap, so if your business model — like SolarCity’s — is based on that cost curve, there’s money to be made.